Friday, February 4, 2011

Intel CEO Sees Orders Picking Up

Intel Corp. executives said conditions in its existing businesses aren't as bad as people think, while efforts to move into new sectors are starting to gain traction.

The company also discussed an effort to spur the creation of thin, light notebook computers at much lower price points than current systems in that category, yet not as inexpensive as a breed of portables called netbooks that emerged in 2008.

Paul Otellini, Intel's Chief Executive Officer, said demand for its computer chips appeared to have "bottomed out" in the first quarter. At a meeting with analysts, he said that the company's recent order pattern indicates business in the current period is "a little better" than the company expected.

Mr. Otellini noted that the market research firm Gartner Inc. predicts personal computer unit sales will decline about 10% this year. More broadly, Mr. Otellini argued that the most telling measure of high-tech health is the growth of Internet traffic, which continued to grow in the current downturn - just as it did when the initial Internet boom turned to a bust in late 2000. He predicted traffic growth will continue, justifying the company's massive investments in factories that turn silicon wafers into chips.

"There is no recession in the growth of the Internet," he said. "This is the fundamental driver of Intel Silicon." Sean Maloney, an Intel Executive Vice President in charge of sales and marketing, noted that computer demand at the moment appears to be strongest for products sold to consumers. By contrast, demand for computers purchased by companies -- particularly PCs -- remains weak, he said.

Perhaps the biggest criticism of Intel's performance in the last decade is its failure to diversify effectively. The company continues to make most of its money from sales of chips that serve as calculating engines for desktop and portable PCs and server systems.

Mr. Otellini and other Intel executives cited evidence that they said points to progress in moving to four new markets. The first is represented by netbooks, portables that often cost $300 or less and typically use a low-end Intel chip called Atom. Mr. Otellini said the first four quarters of sales in that market have taken off faster than two well-known hits, Nintendo Corporation Wii video game console and Apple Inc.'s iPhone.

Intel is also targeting chips for smartphones, for consumer electronics products and for so-called "embedded applications,” which include industrial and office equipment. By 2011, the combination of the new sectors with existing businesses will represent a market that consumes about 1 billion chips a year, while sectors Intel now serves consume about a third of that total, Mr. Otellini said.

While Intel has discussed using its chips to target those new sectors before, Mr. Otellini and other executives put new emphasis on how software will help take its technology into new markets. One example is Moblin, a version of Linux that Intel has been pushing for smartphones and netbooks.

Renee James, the Vice President of Intel's software efforts, noted other new initiatives that include tools to help programmers exploit chips that come with multiple processing units. She also noted that the company had purchased a company called Opened Hand Ltd., a London-based startup she said would aid development of new software around a popular low-end chip called Atom.

Mr. Maloney said Atom-based netbooks are not as good at certain chores consumers want to do, like playing high-quality video, he said.

Besides driving the growth of netbooks, Mr. Maloney said Intel is trying to spur demand by trying to take thin and light laptops into mainstream price points. He didn't quantify system pricing, but such portables typically cost well over $1,000, while most laptops sold cost well below that.

The issue for the notebook PC industry over the next year and a half is that "thin is in," Mr. Maloney said. He said these new laptops, will be about 50% of the weight of conventional portables, similar to better performance and "radically better" battery life.

Intel's analyst meeting took place the day before European Union antitrust regulators is expected to fine the company for tactics it has used in countering rival Advanced Micro Devices Inc. Asked about the possible EU action; Mr. Otellini characterized that possibility as a rumor. "I can assure that you when it's anything but a rumor we will comment," he said.